Changing All the RulesChanging All the Rules 
 
 
 
      April 4, 2004
      Changing All the Rules
      By BRUCE BARCOTT
 
      President Bush doesn't talk about new-source review very often. In fact, 
he 
      has mentioned it in a speech to the public only once, in remarks he 
      delivered on Sept. 15, 2003, to a cheering crowd of power-plant workers 
      and executives in Monroe, Mich., about 35 miles south of Detroit. It was 
      an ideal audience for his chosen subject. New-source review, or N.S.R., 
      involves an obscure and complex set of environmental rules and regulations 

      that most Americans have never heard of, but to people who work in the 
      power industry, few subjects are more crucial. 
      The Monroe plant, which is operated by Detroit Edison, is one of the 
      nation's top polluters. Its coal-fired generators emit more mercury, a 
      toxic chemical, than any other power plant in the state. Until recently, 
      power plants like the one in Monroe were governed by N.S.R. regulations, 
      which required the plant's owners to install new pollution-control devices 

      if they made any significant improvements to the plant. Those regulations 
      now exist in name only; they were effectively eliminated by a series of 
      rule changes that the Bush administration made out of the public eye in 
      2002 and 2003. What the president was celebrating in Monroe was the 
      effective end of new-source review. 
      ''The old regulations,'' he said, speaking in front of a huge American 
      flag, ''undermined our goals for protecting the environment and growing 
      the economy.'' New-source review just didn't work, he said. It dissuaded 
      power companies from updating old equipment. It kept power plants from 
      operating at full efficiency. ''Now we've issued new rules that will allow 

      utility companies, like this one right here, to make routine repairs and 
      upgrades without enormous costs and endless disputes,'' the president 
      said. ''We simplified the rules. We made them easy to understand. We trust 

      the people in this plant to make the right decisions.'' The audience 
      applauded. 
      Of the many environmental changes brought about by the Bush White House, 
      none illustrate the administration's modus operandi better than the 
      overhaul of new-source review. The president has had little success in the 

      past three years at getting his environmental agenda through Congress. His 

      energy bill remains unpassed. His Clear Skies package of clean-air laws is 

      collecting dust on a committee shelf. The Arctic National Wildlife Refuge 
      remains closed to oil and gas exploration. 
      But while its legislative initiatives have languished on Capitol Hill, the 

      administration has managed to effect a radical transformation of the 
      nation's environmental laws, quietly and subtly, by means of regulatory 
      changes and bureaucratic directives. Overturning new-source review -- the 
      phrase itself embodies the kind of dull, eye-glazing bureaucrat-speak that 

      distracts attention -- represents the most sweeping change, and among the 
      least noticed. 
      The changes to new-source review have been portrayed by the president and 
      his advisers as a compromise between the twin goals of preserving the 
      environment and enabling business, based on a desire to make environmental 

      regulations more streamlined and effective. But a careful examination of 
      the process that led to the new policy reveals a very different story, and 

      a different motivation. I conducted months of extensive interviews with 
      those involved in the process, including current and former government 
      officials, industry representatives, public health researchers and 
      environmental advocates. (Top environmental officials in the Bush 
      administration declined to comment for this article.) Through those 
      interviews and the review of hundreds of pages of documents and 
      transcripts, one thing has become clear: the administration's real problem 

      with the new-source review program wasn't that it didn't work. The problem 

      was that it was about to work all too well -- in the way, finally, that it 

      was designed to when it was passed by Congress more than 25 years ago. 
      Having long flouted the new-source review law, many of the nation's 
      biggest power companies were facing, in the last months of the 1990's, an 
      expensive day of reckoning. E.P.A. investigators had caught them breaking 
      the law. To make amends, the power companies were on the verge of signing 
      agreements to clean up their plants, which would have delivered one of the 

      greatest advances in clean air in the nation's history. Then George W. 
      Bush took office, and everything changed. 
 
      II. 
      The Clean Air Act, adopted by Congress and signed by President Nixon in 
      1970, required industrial polluters to clean up their operations. The law 
      forced power plants and large factories to minimize their emissions of 
      harmful pollutants like sulfur dioxide and lead, and it established 
      national air-quality standards to be met by 1975. Congress acknowledged, 
      however, that forcing polluters to retrofit every existing plant 
      immediately would be tremendously costly, potentially crippling entire 
      industries. So in a concession to industry, the lawmakers agreed to apply 
      the tough standards only to newly built facilities. 
      Seven years passed, and the national air-quality standards went unmet. 
      Instead of building new, cleaner plants, many companies simply patched and 

      upgraded their old, dirty plants. So Congress updated the act in 1977, 
      introducing a regulation called new-source review to bring older plants 
      into compliance. Under N.S.R., a company could operate an old factory as 
      long as it wasn't substantially modified. Eventually, it was assumed, the 
      company would have to update its equipment, at which point new-source 
      rules required the company to install the best available pollution-control 

      technology. It was a way to let companies phase in the switch to cleaner 
      factories over a number of years instead of all at once. 
      The legislators who passed new-source review expected the law to encourage 

      electric utilities to replace old, heavily polluting coal-fired plants 
      with cleaner new ones. And during the 80's and 90's, some power companies 
      did replace coal plants with cleaner ones that burned natural gas. But 
      many others retooled plants to keep them running long past their expected 
      life spans, and few were fitted with the scrubbers and other equipment 
      required under N.S.R. 
      The electric industry complained that N.S.R. rules were so complicated and 

      confusing that it was impossible for utilities to determine the difference 

      between ''routine'' maintenance, which wouldn't require an upgrade, and a 
      significant ''physical change,'' which would. An examination of documents 
      made public as a result of lawsuits, however, makes it difficult to credit 

      these complaints. Beginning soon after N.S.R. was implemented, E.P.A. 
      officials issued frequent letters and bulletins telling power companies 
      exactly where the agency was drawing the line. And in 1990, after a 
      Wisconsin power company lost a suit against the E.P.A. over N.S.R., Henry 
      Nickel, an attorney representing the Utility Air Regulatory Group, an 
      industry association, complained in a letter to William Reilly, the head 
      of the E.P.A. under the first President Bush, that the court's decision 
      meant that ''any time a component breaks -- even a minor component -- and 
      repair is needed to maintain normal operations,'' new-source standards 
      would ''be triggered unless the work is found to be 'routine' by the 
      E.P.A. staff.'' Nickel seemed to understand clearly what the new-source 
      rules said -- but that didn't mean he and other industry representatives 
      liked them. Nickel said that the rules were bad not only for utilities but 

      also for clean air, because power companies would be discouraged from 
      updating their plants with cleaner, more efficient technology. 
      Officials in the Clinton administration spent years trying to make the 
      N.S.R. program more palatable to industry without sacrificing public 
      health. Carol M. Browner, President Clinton's E.P.A. administrator, 
      floated new ideas like plantwide applicability limits (P.A.L.'s), a 
      program to cap and reduce emissions on a plant-by-plant basis, but chose 
      not to pursue them when it became apparent that they wouldn't reduce 
      pollution faster than the existing new-source regulations. Robert 
      Perciasepe, Browner's assistant administrator for air and radiation, kept 
      the flagging effort alive by bringing together industry officials, state 
      and local clean-air regulators, environmental leaders and public health 
      advocates in an ad-hoc working group that struggled to find a mutually 
      acceptable way to implement N.S.R. regulations. But by the end of 2000, 
      Browner told me, the E.P.A.'s efforts to find a compromise ''were 
      essentially dead.'' 
      When I spoke to him recently, Perciasepe, now C.E.O. of the National 
      Audubon Society, put the matter bluntly. The reason new-source review did 
      not get streamlined during the Clinton years, he said, was that the energy 

      companies, utilities and other industries had no interest in any sort of 
      workable reforms. ''In hindsight, maybe we were going after a sort of holy 

      grail,'' he told me. ''You were not going to reach agreement with some of 
      these folks,'' he said, referring to industry representatives, ''because 
      what they really wanted was to not have to do it.'' 
      Oddly, while industry and government haggled fruitlessly over potential 
      rule changes, nobody was making sure that companies were complying with 
      the existing law. Mostly the E.P.A. was leaving them alone. ''There were 
      other things that had to be done first,'' Browner explained. ''We looked 
      at where we could get the biggest bang for the buck in terms of pollution 
      reduction.'' Coal-fired power plants didn't move to the top of the 
      agency's list until late 1996, when Bruce Buckheit, a former Justice 
      Department lawyer who had recently joined the E.P.A. as director of its 
      air-enforcement division, happened to notice an article in The Washington 
      Post about proposed changes to the ownership rules that govern the power 
      industry. ''The story predicted that deregulation would increase the use 
      of coal-fired power generation in the Midwest,'' Buckheit recalled. ''So 
      we thought, If they're going to have all that expansion, they're going to 
      have to pay attention to new-source review rules.'' That led him to 
      wonder, he said, whether utilities had been paying attention to the rules 
      at all. 
      Buckheit and other E.P.A. officials began asking questions. They found 
      disturbing answers. Industry records indicated that many power plants had 
      upgraded their facilities to burn more coal, which required new-source 
      review permits, but ''we started looking around for the permits,'' 
      Buckheit said, ''and there weren't any.'' Many of the nation's biggest 
      energy companies, E.P.A. officials found, had updated their plants without 

      putting in any new pollution controls and were illegally releasing 
      millions of tons of harmful pollutants. ''Companies understood what was 
      going on, and a lot of them thought they could evade the law,'' recalled 
      Sylvia Lowrance, who was the E.P.A.'s top official for enforcement and 
      compliance (and Buckheit's boss) from 1996 to 2002. 
      At the same time, a growing body of medical research indicated that 
      industrial air pollution was making a lot of people sick. Power plants 
      pump dozens of chemicals into the air; among the most harmful are nitrogen 

      oxides, sulfur dioxide and mercury. Nitrogen oxides are major producers of 

      ground-level ozone, or smog, and they interact in the atmosphere with 
      sulfur dioxide, water and oxygen to form acid rain. Mercury, a highly 
      toxic chemical that is emitted as a vapor when coal is burned, has been 
      found to cause brain disorders in developing fetuses and young children, 
      and unhealthy levels of it have recently been detected in swordfish and 
      tuna. 
      The most disturbing research, though, involved fine particulates, the tiny 

      particles of air pollution that spew out of smokestacks and lodge deep 
      within the lungs of people nearby and even miles away. During the late 
      80's and 90's, medical researchers found that long-term exposure to fine 
      particulates caused asthma attacks in children and raised the risk of 
      chronic bronchitis in adults. Coal-fired plants account for about 60 
      percent of the nation's sulfur dioxide emissions and 40 percent of the 
      mercury, and power plants as a whole are the nation's second-largest 
      source of nitrogen-oxides pollution, after automobiles. Public health 
      researchers estimate that fine-particulate pollution from power plants 
      shortens the lives of more than 30,000 Americans every year. 
      Pollution-controlling technology, while costly, can make an enormous 
      difference. A new scrubber can cut emissions up to 95 percent. 
      Spurred on by that research, E.P.A. officials mounted a campaign to clean 
      up the illegally polluting coal-fired power plants. E.P.A. agents began to 

      go after suspected Clean Air Act violators through the companies' own 
      accounting books. In any corporation, big capital improvement projects 
      usually leave a trail of documents. Any department in a company that 
      proposes a capital improvement has to justify it to the company's 
      higher-ups, often by way of memos, briefing books, e-mail messages or 
      PowerPoint presentations. In 1997, the E.P.A. started collecting such 
      data, threatening subpoenas if companies didn't comply. ''We got lists of 
      capital projects, then went after the internal justifications for those 
      projects,'' Buckheit said. 
      After two years of investigation, E.P.A. officials had accumulated a 
      daunting amount of evidence of wrongdoing by the coal-burning power 
      industry. ''This was the most significant noncompliance pattern E.P.A. had 

      ever found,'' Sylvia Lowrance said. ''It was the environmental equivalent 
      of the tobacco litigation.'' Records compiled by the utilities themselves 
      showed, according to former E.P.A. officials, that companies industrywide 
      had systematically broken the law. If that was true, E.P.A. officials 
      noted, the agency might have enough legal leverage to force the industry 
      to install up-to-date pollution controls and achieve something truly 
      historic: not merely incremental cuts in emissions but across-the-board 
      reductions of 50 percent or more. ''On sulfur dioxide alone, we expected 
      to get several million tons per year out of the atmosphere,'' Buckheit 
      said. 
      E.P.A. agents are sometimes portrayed as eco-cops, but they function more 
      like overworked and financially strapped prosecutors. Big enforcement 
      actions are rarely carried out in courtrooms; instead, there's a lot of 
      negotiating and plea bargaining involved. From the E.P.A.'s perspective, 
      at least during the Clinton years, the point was not to hammer violators 
      with big fines but to get them to reduce the amount of pollution they were 

      creating. That strategy had proved effective with the oil-refinery 
      industry, which like the utilities had systematically skirted the 
      new-source review law in the 80's and 90's: E.P.A. officials presented 
      their case, and many refinery executives agreed to pay fines and install 
      new pollution-control measures. Once the agreements had been reached, some 

      refinery officials even embraced the changes. Tim Scruggs, the manager of 
      BP's Texas City refinery, the nation's largest, told Octane Week, an 
      industry publication, ''We are a society that can afford a few cents per 
      gallon to achieve cleaner air.'' 
      Utility officials, however, weren't going to give in so easily. In the 
      summer of 1999, Buckheit and other E.P.A. officials asked executives at 
      the worst-offending power companies to come to the agency's headquarters 
      in Washington. In a series of meetings, E.P.A. officials sat down with 
      representatives from each company, one by one, and laid out their 
      evidence. ''Is there something we're missing?'' Buckheit said he asked 
      them. Later, he gathered all the executives together in one room and 
      reiterated the agency's suspicion that their companies had systematically 
      violated the Clean Air Act. ''Unless we're getting something wrong here,'' 

      Buckheit recalled saying, ''these are violations of the law. Y'all want to 

      step up to the plate?'' No one did. 
      Months passed. Industry executives and lawyers refused to address the 
      E.P.A.'s complaints. Finally, in November 1999, the agency decided to take 

      the polluters to court. The Justice Department, on behalf of the E.P.A., 
      announced lawsuits against seven electric utility companies in the Midwest 

      and South, charging that their power plants had been illegally releasing 
      enormous amounts of pollutants, in some cases for 20 years or more. The 
      companies included FirstEnergy, American Electric Power and Cinergy, all 
      headquartered in Ohio; Southern Indiana Gas and Electric; Illinois Power; 
      Tampa Electric, in Florida; and Alabama Power and Georgia Power, two 
      subsidiaries of the Atlanta-based Southern Company, the biggest power 
      supplier in the Southeast. The E.P.A. also issued a compliance order to 
      the Tennessee Valley Authority (T.V.A.), the nation's largest public power 

      company, charging T.V.A. with similar violations at seven of its 
      coal-fired plants in Kentucky, Tennessee and Alabama. In addition, the 
      E.P.A. put a number of other utilities on notice, warning them that the 
      Justice Department would come after them next if they didn't clean up 
      their acts. 
      Taken together, the companies named in the suits emitted more than 2 
      million tons of sulfur dioxide every year and 660,000 tons of nitrogen 
      oxides. Attorney General Janet Reno announced the suits herself. ''When 
      children can't breathe because of pollution from a utility plant hundreds 
      of miles away,'' she said, ''something must be done.'' 
 
      III. 
      From the perspective of the utility industry, the E.P.A. was changing the 
      rules in the middle of the game. Dan Riedinger, spokesman for the Edison 
      Electric Institute, the leading trade association for electric utilities, 
      told me that the lawsuits came as a surprise. ''For years we'd asked the 
      E.P.A. for guidance about how we should meet N.S.R. requirements,'' 
      Riedinger said. ''That guidance never came. Instead, the agency just began 

      suing power plants.'' 
      ''I've heard that argument,'' Eric Schaeffer, a former E.P.A. official, 
      responded in an interview. ''And I've got to say, that's completely hokey. 

      I was in dozens of conversations with company officials and their lawyers, 

      and the idea that we were enforcing regulations they were unaware of -- 
      that simply didn't come up.'' 
      A statement issued by the Southern Company shortly after the lawsuits were 

      announced noted that the utility had cooperated with the E.P.A.'s 
      investigation by providing the agency with more than 120,000 pages of 
      documents. ''Our goal throughout this process has been to cooperate with 
      E.P.A. and find a workable solution to this issue,'' the statement said. 
      The amount of money at stake was enormous. Potential penalties ran to 
      $27,500 per plant for each day it had been in violation. Since many of the 

      violations the utilities were charged with began in the 70's, they faced 
      potential fines of tens of millions of dollars. Cost estimates for fitting 

      power plants with new scrubbers and, in some cases, reconfiguring entire 
      plants to run on cleaner-burning natural gas were estimated in the 
      hundreds of millions of dollars. The cost of installing new equipment was, 

      of course, the reason the companies had, according to the E.P.A., skirted 
      the new-source review rules in the first place. (Still, the companies were 

      not about to be put out of business by complying with E.P.A. regulations. 
      In 1999, the Southern Company reported profits of $1.3 billion.) 
      The utility industry immediately turned to the Republican-controlled 
      Congress for relief from the lawsuits. A few days after the suits were 
      announced, power companies and industry trade groups asked sympathetic 
      House members to attach a rider to an appropriations bill. The rider would 

      allow companies to perform ''routine maintenance'' while the lawsuits were 

      pending. In the opinion of the rider's opponents, it would let power 
      companies perform more illegal retooling while the industry's lawyers 
      delayed the E.P.A.'s lawsuit in court. But Representative C.W. Bill Young, 

      a Tampa-area Republican, unexpectedly turned a deaf ear to the overtures 
      of his local utility company, Tampa Electric, and refused to put the rider 

      on the bill. As chairman of the House Appropriations Committee, Young had 
      fought to keep House members from sneaking special-interest riders onto 
      spending bills. He stood on principle, and the rider died. 
      Faced with Congressional rejection and mounting fines, some utilities 
      struck bargains with the federal government. Tampa Electric, unable to 
      make any headway with Young, agreed in February 2000 to spend more than $1 

      billion on new pollution controls and pay a $3.5 million civil penalty. 
      The agreement took 123,000 annual tons of pollution out of the sky, and 
      the civil penalty amounted to a little less than 2 percent of Tampa 
      Electric's profits from 1999. Officials at some other utilities followed 
      Tampa Electric to the negotiating table. 
      But others took an alternate route: they started writing checks to George 
      W. Bush's presidential campaign fund. The Bush campaign had a special 
      title for contributors who raised at least $100,000: Pioneers. Among the 
      more than 200 Pioneers during the 2000 Bush election campaign were 
      FirstEnergy's president, Anthony Alexander; Reliant Resources' C.E.O., 
      Steve Letbetter; and Reliant's chairman, Don Jordan. (MidAmerican Energy's 

      C.E.O., David Sokol, has joined the elite rank for the 2004 re-election 
      campaign; Southern Company's executive vice president Dwight Evans has 
      been named a Ranger, meaning he has raised more than $200,000.) Each of 
      these executives' companies was either in litigation or was soon to be 
      under investigation for new-source review violations. Six other Pioneers 
      were lawyers or lobbyists for companies charged with N.S.R. violations. 
      Even in the early stages of Bush's 2000 run, energy executives understood 
      what strong support of a winning candidate could mean. Thomas R. Kuhn, a 
      Yale classmate of President Bush's and president of the Edison Electric 
      Institute, was a 2000 Pioneer and is a Pioneer for the 2004 campaign as 
      well. On May 27, 1999, Kuhn sent energy-industry executives a confidential 

      memo, later made public in the course of a lawsuit, advising them to 
      bundle their contributions to the Bush campaign under a tracking number to 

      ''ensure that our industry is credited'' for its generosity. 
      After Bush eventually emerged as the winner of the 2000 election, industry 

      leaders were upbeat about the prospect of the coming four years. The 
      president and the vice president, Dick Cheney, were, after all, oilmen. 
      The coal-industry trade magazine Coal Age exulted in the industry's 
      ''high-level access to policymakers in the new administration.'' Soon 
      after Bush's inauguration, the electric utilities sought relief from the 
      E.P.A. and its new-source review program. The problem was that most voters 

      -- including Republican voters -- opposed rollbacks. A Gallup poll in 2001 

      found that 81 percent of Americans supported stronger environmental 
      standards for industry. According to another 2001 poll, only 11 percent 
      thought the government was doing ''too much'' to protect the environment. 
      Previous Republican leaders tried to enact a pro-industry environmental 
      agenda and met with only limited success. In 1981, President Reagan took 
      office promising that in his administration the E.P.A. would have 
      ''leaders who know and care about the coal industry.'' He appointed as 
      head of the E.P.A. Anne Gorsuch, an attorney who had fought the E.P.A.'s 
      enforcement of clean-air laws, and he named James Watt, a staunch defender 

      of private enterprise against environmental regulation, as secretary of 
      the interior. Watt pushed to open up potential federal wilderness lands to 

      developers. Gorsuch took office under instructions from the White House to 

      make the E.P.A. more friendly to industry. Within two years, they had 
      become provocative symbols of anti-environmentalism and were forced to 
      resign in separate scandals. Similarly, in 1994, Newt Gingrich and his 
      House Republicans rode into power determined to weaken the Clean Water Act 

      and the E.P.A.'s Superfund program. Their bold frontal attacks galvanized 
      environmental activists and the Clinton administration, and Congress was 
      persuaded to leave the laws alone. 
      The Bush administration seemed determined not to repeat those political 
      mistakes. Taking a lesson from Reagan's experience with Gorsuch and Watt, 
      Bush officials realized that it would be self-defeating to appoint to 
      public positions people with outspoken views on the environment, so they 
      found noncombative figures instead. They named as head of the E.P.A. 
      Christie Whitman, who was seen as a moderate when she was appointed, in 
      part because she had participated in a clean-air lawsuit against a power 
      company as governor of New Jersey. Learning from the Gingrich defeat, 
      administration officials recognized that bills that overtly attacked 
      environmental protections stood little chance of surviving in Congress. So 

      they adopted a two-track strategy. Publicly, the president asked Congress 
      to pass major environmental legislation like the Clear Skies Initiative 
      and a sweeping energy bill, which he knew would face considerable 
      opposition. Privately, the president's political appointees at the 
      Department of the Interior, Environmental Protection Agency, Department of 

      Agriculture and Office of Management and Budget would carry out those same 

      policies less visibly, through closed-door legal settlements and obscure 
      rule changes. 
      One key element of the strategy was putting the right people in 
      under-the-radar positions. The Bush administration appointed officials who 

      came directly from industry into these lower rungs of power -- deputy 
      secretaries and assistant administrators. These second-tier appointees 
      knew exactly which rules and regulations to change because they had been 
      trying to change them, on behalf of their industries, for years. One 
      appointee was Jeffrey Holmstead, a lawyer and lobbyist for groups like the 

      Alliance for Constructive Air Policy, an electric utility trade group that 

      sought to weaken the Clean Air Act. Holmstead stepped into the role of 
      assistant E.P.A. administrator for air and radiation, where he would 
      oversee changes to new-source review. 
 
      IV. 
      In the past, industry succeeded in blocking environmental reforms by 
      arguing that they would mean lost jobs. But the 
      jobs-versus-the-environment defense became less convincing during the 
      economic expansion of the 90's, which took place under the relatively 
      tough environmental restrictions of the Clinton administration. The Bush 
      administration needed a different engine of necessity to propel 
      environmental rollbacks like the scuttling of new-source review. It found 
      one in the Cheney energy task force. 
      Nine days after his swearing in, President Bush created the National 
      Energy Policy Development Group, a task force headed by Vice President 
      Dick Cheney and charged with developing a national energy policy. The 
      timing of Bush's ascendance to the presidency could not have been better 
      for the energy industry. When Bush came to office, the nation was riveted 
      by a bizarre energy crisis unfolding in California. We now know that 
      California's energy shock was largely caused by market manipulation (by 
      Enron, among other companies) and regulatory breakdown, not by a drought 
      in supply. But we didn't know it then. A few days after he created the 
      energy task force, President Bush went on CNN and blamed environmentalists 

      for the crisis. ''If there's any environmental regulation that's 
      preventing California from having 100 percent max output at their plants 
      -- as I understand there may be -- then we need to relax those 
      regulations,'' he said. California utility officials denied that 
      environmental rules had anything to do with the crisis. But their protests 

      didn't matter. The president had forged the link. 
      Cheney's energy task force solicited suggestions from various quarters, 
      but few outside a tight circle of industry insiders were able to make 
      themselves heard. Although the vice president continues to fight a lawsuit 

      -- now before the Supreme Court -- that would require him to divulge the 
      names of industry executives consulted by his task force, documents 
      released in the course of the legal battle reveal the tenor of the 
      exchanges. 
      On March 18, 2001, Joseph Kelliher, a top assistant to Energy Secretary 
      Spencer Abraham, e-mailed Dana Contratto, an energy-industry lobbyist. 
      ''If you were King, or Il Duce,'' Kelliher wrote, ''what would you include 

      in a national energy policy . . . ?'' Apparently that was one of many 
      e-mail messages to industry lobbyists, for Kelliher's electronic mailbox 
      was soon pinging with activity. A March 20, 2001, message from Jim Ford, 
      lobbyist for the American Petroleum Institute, a powerful 
      oil-and-gas-industry trade group, included a ready-made decree. ''The last 

      document,'' Ford wrote, referring to one of 10 attachments, ''is a 
      suggested executive order to ensure that energy implications are 
      considered and acted on in rulemakings and other executive actions.'' 
      President Bush would issue a very similar executive order two months 
      later, the day after the energy task force report was released. 
      Another Kelliher correspondent, Stephen Sayle, a Republican Congressional 
      aide, who is now an energy lobbyist, added a somewhat abashed note to the 
      end of his March 23, 2001, wish list, which included a plea to stop 
      enforcement of new-source review. ''Obviously, this is a dream list,'' he 
      wrote. ''Not all will be done. But perhaps some of these ideas could be 
      floated and adopted.'' In fact, Sayle was being needlessly pessimistic; 
      most of the items on his list, many of which dealt with new-source review, 

      were eventually adopted. 
      Many more wish lists arrived at the Energy Department, and many of them 
      led with the same idea: gutting new-source review. In case the 
      administration didn't get the message, a consortium of energy companies 
      hired Haley Barbour, former chairman of the Republican National Committee, 

      to press their cause in a face-to-face meeting with Vice President Cheney. 

      According to a recent article by Christopher Drew and Richard A. Oppel Jr. 

      in The New York Times, Barbour was accompanied in that meeting by Bush's 
      friend Marc Racicot, who is now chairman of the president's re-election 
      campaign. 
      Over at E.P.A., Whitman and other top officials tried to resist the policy 

      changes coming out of the Energy Department. When a draft of the National 
      Energy Policy circulated in late April 2001, Tom Gibson, an associate 
      E.P.A. administrator appointed under President Bush, sent a memo to the 
      task force director arguing that one of the president's, and the policy's, 

      fundamental assumptions -- that environmental regulations had hamstrung 
      American domestic energy production -- was flat wrong. ''Costs of 
      compliance with environmental regulations are overstated, several 
      inaccurate statements and opinions are presented as factual and no 
      citations are provided for many of these statements,'' Gibson wrote. He 
      and other E.P.A. officials, he continued, ''are very concerned that this 
      language is inaccurate and inappropriately implicates environmental 
      programs as a major cause of supply constraints. . . . Such a conclusion, 
      in our opinion, is overly simplistic and not supported by the facts.'' 
      Whitman, who was a member of Cheney's task force, often found herself and 
      Treasury Secretary Paul O'Neill acting as the panel's only defenders of 
      environmental protections. In Ron Suskind's recent book ''The Price of 
      Loyalty,'' O'Neill recalls Whitman saying after one meeting: ''This is a 
      slaughter. It's 10 on 2, not counting White House people and all the 
      advisers to the group from the various industries.'' (Whitman, who is 
      co-chairman of President Bush's re-election campaign in New Jersey, 
      declined to comment for this article. According to her spokesman, she has 
      criticized O'Neill's book as inaccurate in many of its details.) 
      Whitman was in an especially tough position with respect to new-source 
      review. Thirteen months before she was named to the Bush cabinet, when she 

      was governor of New Jersey, Whitman joined a lawsuit to force Ohio-based 
      American Electric Power to clean up its coal-fired plants, and now that 
      she was head of the E.P.A., American Electric was one of the seven 
      utilities the agency was suing for new-source review violations. In the 
      spring of 2001, as the energy task force was completing its work and 
      preparing its report, Whitman understood that new-source review faced 
      effective elimination under industry pressure, and she worried about the 
      environmental and political implications of such a move. In May 2001, less 

      than two weeks before the final energy report was released, Whitman sent a 

      memo to Cheney. ''As we discussed, the real issue for industry is the 
      enforcement cases,'' she wrote. ''We will pay a terrible political price 
      if we undercut or walk away from the enforcement cases; it will be hard to 

      refute the charge that we are deciding not to enforce the Clean Air Act.'' 

 
      President Bush's final National Energy Policy (N.E.P.) was published on 
      May 16, 2001. In its 170 well-designed, color-illustrated pages lay the 
      administration's vision of the environmental future of the United States. 
      The policy's defining notion was simple: environmental regulations have 
      constrained America's domestic energy supply. In broad strokes, the N.E.P. 

      laid out the next three years of the Bush administration's energy and 
      environmental agenda: roll back wilderness and wildlife protections to 
      open up more public land to oil and gas development; establish fast-track 
      hydropower permits; expand offshore oil and gas drilling; and replace 
      tough Clean Air Act rules, including new-source review, with an 
      industry-friendly market-based pollution trading system. These weren't 
      items on a wish list. They were marching orders. Among the first to be 
      carried out was the mandate to overhaul new-source review. 
      To that end, the White House directed the Justice Department to review its 

      cases against the Southern Company, American Electric and others to see if 

      any of the suits might be dropped outright. According to a senior E.P.A. 
      adviser supportive of the administration's policies, who spoke on 
      condition of anonymity, ''The administration believed some of those cases 
      were brought'' -- by the Clinton Justice Department -- ''without regard to 

      whether they were really egregious violations of the Clean Air Act worthy 
      of enforcement.'' Certain lawsuits, he said, ''were regarded as more 
      punitive than designed to achieve environmental goals.'' 
      During the same period, Bush appointees at the E.P.A. disbanded Robert 
      Perciasepe's N.S.R. working group and, led by Jeffrey Holmstead, the 
      former industry lobbyist who had become an assistant administrator at the 
      E.P.A., started to rewrite the rules. Publicly, the president ordered the 
      agency to conduct a 90-day review of its new-source rules, and officials 
      dutifully sat through four public hearings during the summer of 2001 and 
      took note of the hundreds of comments regarding the policy. Privately, 
      though, the E.P.A. and the Energy Department were already moving to undo 
      new-source review. At a Senate hearing that July, Whitman outlined a plan 
      to replace the E.P.A.'s toughest clean-air programs with a more flexible, 
      industry-friendly regimen. ''New-source review is certainly one of those 
      regulatory aspects that would no longer be necessary,'' she said. 
      The Energy Department took an unusually active role in drawing up the 
      proposed new-source review changes. In November 2001, D.O.E. officials 
      circulated their proposed changes among the E.P.A. staff for feedback. 
      Officials at the E.P.A.'s air-enforcement division were appalled. ''The 
      current draft report is highly biased and loaded with emotionally charged 
      code words,'' E.P.A. officials wrote in an internal memo. ''It is drafted 
      as a prelude to recommendations to vitiate the N.S.R. program.'' The 
      agency's memo noted that the report ''contains only comments by industry 
      and ignores the comments of all other stakeholders.'' 
      In January 2002, the White House suffered a setback. The Justice 
      Department delivered its report on the legality of the E.P.A.'s lawsuit 
      against the Southern Company and other N.S.R. violators. The department 
      found that contrary to the administration's hopes, all of the lawsuits 
      were legal and warranted. In fact, Justice's lawyers said they intended to 

      prosecute the cases ''vigorously.'' 
      Shortly thereafter, White House officials decided it was time to try the 
      Congressional track. On Feb. 14, 2002, President Bush unveiled his Clear 
      Skies Initiative. The president declared that his proposed legislation 
      ''sets tough new standards to dramatically reduce the three most 
      significant forms of pollution from power plants -- sulfur dioxide, 
      nitrogen oxides and mercury.'' 
      It was true that the new standards, if enforced, would reduce emissions 
      from their current rate -- but the president's formulation was somewhat 
      misleading. Clear Skies was to replace Clean Air Act regulations with a 
      cap-and-trade market system. On its face, that was not an unreasonable 
      proposition. Many Republicans and some moderate Democrats embrace the 
      general concept of cap-and-trade, in which Washington sets pollution 
      standards for the entire country (the ''cap'') and then allows companies 
      that manage to reduce their emissions below the standard to sell their 
      extra pollution ''allowance'' to companies that haven't met the standard 
      (the ''trade''). The key to cap-and-trade lies in the standard -- how low 
      it is set and how quickly it shrinks. And when President Bush announced 
      Clear Skies, the E.P.A. was already on track to require deeper reductions 
      in air pollution than his cap-and-trade proposal would produce. So the air 

      would actually be dirtier under Clear Skies than if the president allowed 
      the E.P.A. to enforce the existing law. Clear Skies allowed 50 percent 
      more sulfur dioxide, nearly 40 percent more nitrogen oxides and three 
      times as much mercury as the Clean Air Act -- rigorously enforced -- 
      called for. 
      Because of this discrepancy, the legislation was not greeted with much 
      enthusiasm in Congress. Clear Skies wasn't helped by the fact that a 
      former top E.P.A. official went on ABC's ''This Week'' to denounce the 
      proposal two weeks after it was introduced. ''We can do better under 
      current law than what they're putting on the table,'' Eric Schaeffer told 
      George Stephanopoulos. Schaeffer, the E.P.A.'s head of civil enforcement 
      from 1997 to 2002, had worked on the new-source review lawsuits since 
      their inception. He left the E.P.A. in early 2002, tired, as he said in 
      his letter of resignation, of ''fighting a White House that seems 
      determined to weaken the rules we are trying to enforce.'' 
      Schaeffer's frustration stemmed from the collapse of talks that had been 
      leading, in his estimation, to the elimination of more than four million 
      tons of air pollution annually. Officials at the power companies named in 
      the new-source review lawsuits, who had been negotiating with E.P.A. 
      officials, were well aware that White House appointees were drafting new 
      rules that would all but scuttle N.S.R., and they lost their incentive to 
      cut deals. Beginning in 2001, soon after Bush took office, negotiations 
      began to break down. ''We were 80 percent of the way done with seven or 
      eight companies, and one by one they just walked away,'' said Bruce 
      Buckheit, who conducted many of the negotiations himself. Even done deals 
      fell apart. In late 2000, E.P.A. officials reached an agreement in 
      principle with Cinergy that was designed to cut nearly 500,000 tons of the 

      company's annual emissions. By 2002, Cinergy had backed out. 
      Christie Whitman did little to help the negotiations. In her testimony 
      before the Senate Committee on Government Affairs in March 2002, she 
      described new-source review as ''a program that needs to be fixed,'' but 
      assured the committee that the E.P.A. would not eviscerate the program. 
      Later in her testimony, though, Whitman offered unsolicited advice to the 
      companies her agency was suing for N.S.R. violations. At the time, the 
      Tennessee Valley Authority, which had refused to settle with the Justice 
      Department, had gone to court to challenge the E.P.A. over new-source 
      review. ''If I were a plaintiff's attorney,'' Whitman said, ''I would not 
      settle anything until I knew what happened'' with the T.V.A. case. The 
      message to the power industry, critics charged, was clear: don't settle 
      the cases; change is coming. 
 
      V. 
      Meanwhile, Bush appointees at the E.P.A. and the Energy Department 
      continued to undo the longstanding N.S.R. rules. There was one technical 
      question that was very important to both sides: where would the line be 
      drawn between ''routine maintenance'' of plants, meaning changes that did 
      not trigger N.S.R. pollution upgrades, and significant overhauls that did. 

      In the spring of 2002, Jeffrey Holmstead, the E.P.A.'s assistant 
      administrator, asked Sylvia Lowrance, the E.P.A.'s deputy assistant 
      administrator for enforcement, to suggest a financial threshold -- a 
      percentage of the total value of each generator that a utility would be 
      permitted to spend on renovations and still define them as routine. 
      Lowrance, a 24-year veteran of the agency, had officials in her office 
      study years of data, looking at figures that came from actual power 
      plants, and on June 3, 2002, she wrote a memo to Holmstead indicating that 

      her office thought 0.75 percent was a reasonable figure. (The memo was 
      later released to reporters by a former E.P.A. official critical of the 
      administration's policies.) In other words, if the total value of a 
      generating unit was $1 billion, a power company should be able to 
      legitimately spend up to $7.5 million a year on routine repair and 
      maintenance without being required to install new pollution controls. 
      In a separate memo, Lowrance, Buckheit and Schaeffer warned Holmstead that 

      the proposed changes in new-source review could seriously undermine the 
      E.P.A.'s lawsuits against N.S.R. violators. There were several proposed 
      changes, they wrote, ''that, if included in the final version of the 
      recommendations, could undercut ongoing enforcement activities, including 
      efforts to reach environmentally beneficial settlements.'' Holmstead does 
      not appear to have worried much about the warning from his colleagues. A 
      few weeks later, on July 16, 2002, he went before Congress and testified 
      that officials at the E.P.A. ''do not believe these changes'' -- to 
      new-source review -- ''will have a negative impact on the enforcement 
      cases.'' 
      Holmstead did not seem to believe in the very notion of new-source review. 

      Speaking at an energy-industry conference in Washington in September 2002, 

      Holmstead noted that N.S.R. had spawned thousands of pages of guidance 
      documents, and, he said, ''we can't even say we've gotten any emissions 
      reductions from existing sources.'' The E.P.A.'s own documents, however, 
      show that from 1997 to 1999 alone, the program reduced emissions 
      nationwide by a total of more than four million tons. Holmstead's 
      statement also ignored the fact that the main reason the new-source review 

      law hadn't brought greater across-the-board pollution reductions was that 
      many power companies had systematically violated it for 20 years. 
      (Holmstead declined to be interviewed for this article.) 
      Through the spring and into the summer of 2002, President Bush's Clear 
      Skies Initiative was stalled in Congress. The bill's principal sponsor, 
      Representative Joe Barton, a Texas Republican, formally introduced it on 
      the last Friday in July 2002, just before the House adjourned for summer 
      vacation. That fall, an internal E.P.A. analysis, later leaked to the 
      media, found that a rival bill sponsored by Senator Tom Carper, a Democrat 

      from Delaware, would reduce more emissions, on an earlier schedule and at 
      a comparable cost to consumers, than the president's Clear Skies plan. If 
      the Bush administration was going to bring about changes, it was becoming 
      clear that they would have to be done administratively. 
      The E.P.A. revealed its overhaul of new-source review on Friday, Nov. 22, 
      2002. For all the buildup, it was a conspicuously low-key debut. President 

      Bush issued no statement about the new guidelines. Christie Whitman 
      declined to attend the news conference, which was run by Jeffrey 
      Holmstead. Cameras were not allowed at the event, which seemed timed to 
      hit the weekly news cycle at its Friday night nadir. 
      ''There will be emissions reductions as a result of the final rules that 
      we are adopting today,'' Holmstead said. The new rules gave utilities much 

      more maneuverability under N.S.R. The E.P.A. adopted Carol Browner's old 
      ''micro-cap'' idea -- but abandoned its critical component, the gradual 
      tightening of the cap. Utilities that installed new pollution-control 
      equipment were given 10-year exemptions from further upgrades. An official 

      with the National Association of Manufacturers called the new rules ''a 
      refreshingly flexible approach to regulation.'' The usually staid American 

      Lung Association, in a report issued with a coalition of environmental 
      groups, called the rule changes ''the most harmful and unlawful 
      air-pollution initiative ever undertaken by the federal government.'' 
 
      VI. 
      Bush's E.P.A. appointees left one crucial detail out of the final report. 
      They said they were still working on a final revision of N.S.R. having to 
      do with the often contested definition of ''routine maintenance.'' The 
      agency published its proposed rule in the Federal Register but left the 
      crucial percentage -- the one Sylvia Lowrance and the E.P.A.'s enforcement 

      office had suggested setting at 0.75 percent -- unspecified. 
      In early 2003 -- before that important percentage was arrived at -- the 
      Bush changes were being challenged. The attorneys general of nine states 
      filed suit to stop the new rules from taking effect. Attorney General 
      Eliot Spitzer of New York and his colleagues, almost all of whom were from 

      states in the Northeast, charged that the changes were so sweeping and 
      damaging that the E.P.A. could not make them without Congressional 
      approval. The lawsuit argued, in effect, that the Bush administration's 
      entire administrative approach to undoing new-source review was against 
      the law. Administration officials brushed off the suit as a political 
      maneuver, noting that most of the attorneys general were Democrats. 
      On Aug. 27, 2003, two days before Labor Day weekend, the other N.S.R. shoe 

      dropped. By then, Whitman was gone, having announced her resignation in 
      May. She said she was tired of making the New Jersey-to-Washington commute 

      and wanted to spend more time with her husband. ''I'm not leaving because 
      of clashes with the White House,'' she said in a television interview. 
      ''In fact, I haven't had any.'' A number of career E.P.A. officials told 
      me they suspected that she'd had enough of the White House's dictating 
      policies with which she disagreed, but, if true, Whitman never let on. 
      So it was Marianne Horinko, acting E.P.A. administrator, who announced in 
      August that the agency had finalized its rule on routine maintenance. The 
      new formula would not adopt Lowrance's suggested threshold of 0.75 
      percent. Instead, Horinko said, utilities would be allowed to spend up to 
      20 percent of a generating unit's replacement cost, per year, without 
      tripping the N.S.R. threshold. 
      In other words, a company that operated a coal-fired power plant could do 
      just about anything it wanted to a $1 billion generating unit as long as 
      the company didn't spend more than $200 million a year on the unit. To 
      E.P.A. officials who had worked on N.S.R. enforcement, who had pored over 
      documents and knew what it cost to repair a generator, the new threshold 
      was absurd. ''What I don't understand is why they were so greedy,'' said 
      Eric Schaeffer, the former E.P.A. official. ''Five percent would have been 

      too high, but 20? I don't think the industry expected that in its wildest 
      dreams.'' 
      The framework of new-source review would remain, but the new rules set 
      thresholds so high that pollution-control requirements would almost never 
      come into effect. ''It's a moron test for power companies,'' said Frank 
      O'Donnell, executive director of the Clean Air Trust, a nonprofit watchdog 

      group. ''It's such a huge loophole that only a moron would trip over it 
      and become subject to N.S.R. requirements.'' 
      The report from the American Lung Association and various environmental 
      groups estimated that compared with enforcement of the old N.S.R. rules, 
      the new rules would result in emissions increases of 7 million tons of 
      sulfur dioxide and 2.4 million tons of nitrogen oxides per year by 2020. 
      Had the new rules been in effect before 1999, the lawsuits that the 
      Justice Department filed against the power companies would have been 
      impossible: nearly every illegal action the power companies were accused 
      of back then would have been legal under the new rules. 
      The announcement of the 20 percent limit had a devastating effect on the 
      E.P.A.'s enforcement division. ''Under the new rules,'' Buckheit said, 
      ''almost everything we worked to achieve is wiped out.'' Two months after 
      Horinko's announcement, in November 2003, J.P. Suarez, the Bush-appointed 
      E.P.A. assistant administrator for enforcement, informed staff members 
      that the agency would newly ''evaluate,'' and perhaps choose not to 
      pursue, existing N.S.R. investigations, except those cases that the 
      Justice Department had already taken to federal court. Investigations into 

      70 companies suspected of violations of the Clean Air Act were abandoned. 
      On Christmas Eve, 2003, two days before the new-source review rules were 
      to take effect, a federal appeals court halted their implementation. The 
      court ruled that the new regulations could not go into effect until the 
      lawsuit brought by Eliot Spitzer and 14 other attorneys general (6 more 
      had joined the suit since its inception) was heard. The ruling meant that 
      the new rules would be delayed for at least a year and signaled the 
      beginning of what could be a years-long legal battle. 
      By the end of 2003, with new-source review all but dead, the White House 
      began moving on to other projects. Mike Leavitt, the newly installed 
      E.P.A. administrator, proposed two new regulations. The first suggested 
      new standards for mercury emissions that would in the short term permit 
      the release of as much as seven times as much mercury as current law 
      allows. The second, known as the interstate air-quality rule, set new 
      national caps on sulfur dioxide and nitrogen oxides, and was seen by many 
      as the administrative enactment of Bush's Clear Skies Initiative. 
      Supporters of the administration contend that the interstate air-quality 
      rule will accomplish all the goals of new-source review in a more 
      efficient and comprehensive way. ''All the arguments about N.S.R. and the 
      ability to control pollution from power plants are made moot'' by the new 
      rule, according to the senior E.P.A. adviser who is a supporter of the 
      administration's policies and spoke on condition of anonymity. 
      Yet the new rule set higher national limits for emissions of dangerous 
      chemicals like sulfur dioxide and nitrogen oxides than Clear Skies, which 
      in turn was considered by critics to be weaker than the existing Clean Air 

      Act. Around that time, some longtime E.P.A. officials decided they'd had 
      enough. Bruce Buckheit and Rich Biondi, Buckheit's deputy, took retirement 

      buyouts and left the agency. Buckheit and Biondi said they could no longer 

      carry out their jobs effectively, given the Bush administration's attitude 

      toward the Clean Air Act. 
      The White House's reversal of clean-air gains was especially disturbing to 

      Biondi, who joined the agency in 1971, six months after its inception 
      under President Nixon. The rule changes and the abandonment of the 
      new-source review investigations ''excuse decades of violations,'' he 
      said. ''We worked 30 years to develop a clean-air program that is finally 
      achieving our goals. It was frustrating to see some of our significant 
      advances taken away. I left because I wanted to make a difference, and it 
      became clear that that was going to be difficult at the E.P.A.'' 
 
      Bruce Barcott is a contributing editor at Outside magazine. This is his 
      first cover article for The Times Magazine.
 
 
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